Icahn to Sell Herbalife (HLF) Stake, Stock Tanks

Shares of Herbalife Ltd (HLF) were trading down -3.57 or -5.76 percent to $58.36 per share in Friday’s premarket after news that billionaire investor Carl Icahn was looking to sell his stake in the company according to a report in the Wall Street Journal. In addition, Icahn nemesis Bill Ackman appeared on CNBC earlier this morning and said that he had been approached about buying the stake and agreed to the purchase as long as other buyers participated.

Los Angeles, California based Herbalife Ltd was founded in 1980 and is a multi-level marketing company selling skin care and weight loss products in 87 countries through a network of 2.7 million independent agents. The company’s product line includes energy and fitness supplements, protein snacks and shakes and personal skin care products.

Herbalife had been the target of an FTC investigation into its marketing practices since March of 2014 after the company had been locked in a legal battle with billionaire investor Bill Ackman for over a year.

Image by stevepb / Pixabay

Ackman accused the company of running a pyramid scheme with only top salespeople making money while 90 percent of the company’s independent distributors earned nothing or lost money.

Ackman and Icahn have since gotten into verbal confrontations on live television and have traded legal accusations amid several investigations by regulators. The controversy even inspired a full length documentary which premiered at the Tribeca Film Festival.

Last month, the FTC settled with Herbalife on claims that the company deceived consumers with get rich quick promises. Herbalife agreed to pay $200 million and make significant changes to its business and to stop misrepresenting how much members could make.

According to a report by the Wall Street Journal this morning, investment bank Jeffries Group has been shopping Icahn’s 18.3 percent stake in the Herbalife, citing sources familiar with the matter. The report comes as a surprise after the FTC news last month, which also announced that Icahn could boost his stake in Herbalife to just under 35 percent.

In an interview with CNBC earlier this morning, Bill Ackman said that he thought the FTC’s recent statement — which fell short of calling Herbalife a pyramid scheme, but harshly criticized the company — was negative for the company and that it would lead to the company’s demise. He told CNBC that “This is a confidence game, if Carl sells, it can accelerate the demise of a company.”

Ackman said that he considered purchasing the stake to accelerate its decline — Ackman has a massive short position in the stock — and that the purchase would probably lose him money, but that it would be worth it, saying “I would spend $30 million to get Carl out, probably more”.

Ackman also cited other large shareholders such as George Soros and Dan Loeb, who have liquidated their position in Herbalife, indicating a loss of interest and confidence in the company as a result of the sales. Asked why Icahn would sell his stake, Ackman responded, “I think he knows this is toast,” adding that “he’s made a bunch of money”. Ackman’s short position in Herbalife is in excess of $1 billion.

Icahn is up a handsome amount, having bought the bulk of his stake when the stock was trading at significantly lower levels. Icahn’s break even on his stock purchase is in the low thirties, roughly half of Herbalife’s current stock price.

Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.